In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, and at least until the end of 2007, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using...

The inclusion of labor market frictions in the new Keynesian DSGE model overcomes the main drawbacks of the baseline framework. In this paper we show that this extended model, by assuming real wage rigidities, does not replicate the correct wage dynamics and the negative conditional correlation...